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00:00We are going to talk about energy. Oil prices above $90 a barrel, that's up about 36% in a
00:06week.
00:07Gas prices $3.45 a gallon, that is up about 45 cents in a week.
00:11Daniel Juergen writing in the Financial Times on Friday of this week in an opinion piece titled
00:15Is the Nightmare Scenario for Global Energy? Here I'll read a little bit from it.
00:18Current oil prices in the 90s are far from the worst case scenario, but right now
00:22the world is looking at the biggest disruption in oil production in history
00:26as well as a resounding shock to global gas markets.
00:29The key question for global energy, he writes, is the duration of this explosive war.
00:34Dan Juergen, the Pulitzer Prize-winning author of The Prize, The Epic Quest for Oil, Money, and Power,
00:38author of The New Map, Energy, Climate, and the Clash of Nations, joins us now here on set in New
00:42York.
00:42He's the vice chairman of S&P Global. Dan, great to have you with us on this Sunday.
00:45Thank you so much. Although we did say in the break, you are dressed a little better than us here
00:48on the weekend.
00:49It's a lovely tie. Overdressed. We'll correct it next time.
00:52I want to start with just a broad question about the gravity of this moment.
00:55You get to it in that piece in the FT. How do you look at this in the broad sweep
01:00of history,
01:00the moment that we're in right now, and the potential for this being a conflict that doesn't
01:03last a matter of days or weeks, as the president initially said, but he drags on longer than that?
01:08Well, it is. At least it points to the possibility of the nightmare scenario that has really been there
01:13for half a century, ever since Iran erupted in revolution and set off an oil shock at the end of
01:18the 1970s. But this is, at the scale that we're seeing now, there's nothing comparable to it.
01:25And what does that mean? When you say the nightmare scenario, tease that out for us,
01:29and what should we be expecting or fearing, I guess?
01:31A nightmare scenario would be a war that goes on a long time, a disruption that goes on a long
01:36time,
01:37prices really skyrocketing, and 90 is high, but it's not skyrocketing, with major impacts on financial
01:43markets, and ultimately the world economy plummeting into a recession. That is more or less
01:49this nightmare scenario. That's not where we are. And this would have to go on longer,
01:55and also have to see considerable damage of the infrastructure in the region.
02:00Which concerns you more when it comes to possible Iranian outcomes, a more conservative regime that
02:05is less likely to collaborate or cooperate with other world's economic indicators, or a total power
02:12vacuum. And can you talk about what the difference would be to the global oil markets in production?
02:17Well, it's hard to imagine a totally chaotic Iran. Nobody's in control. And there are ethnic
02:25divisions in the country that would tie it apart. But I think there is a question of imagining what
02:31kind of organization would rule the country other than what it has today. And would it give up?
02:37Would it give up its revolutionary zeal, its antagonism to the West, its effort to dominate
02:43its region, and go back to being what might be called a normal country? And a country that's
02:49focused on economic growth and development, and doesn't run in short of water as it is right now.
02:54Right.
02:54When you look at the news overnight that the UAE is cutting back production, Kuwait's cutting back
02:59production, we see the changes that Saudi Arabia is making, shifting more of its oil through pipelines
03:04and not through the straitiforms. What does that tell you, the way that these countries are reacting
03:07to this about the trajectory of it going forward?
03:10In a way, if you may not remember during COVID, when all the storage was filled up because the
03:17market demand plummeted, people didn't know what to do with oil. And in fact,
03:22You're starting on the negative, right?
03:23Yeah. Oil prices went negative. That's kind of an, it's not a full analogy, but that's where
03:29they are right now. They can't put this. You have a very complicated, integrated system
03:33that goes from pumping oil, processing it, getting into tankers, shipping it to markets.
03:38And that system isn't working now. It's just, it's bottled up. And so that there's no place
03:43to put the oil and you run out of, basically the countries are running out of storage. And
03:46the only thing to do then is cut back production.
03:49I also want to ask you about that bottled up and the bottleneck in the strait of Hormuz.
03:53We've got some sound from the president. We want to play you.
03:57What about the strait of Hormuz? There's no traffic really going through it.
04:00Well, that's, you know, the ship's choices, but we haven't cleaned out. We've wiped out
04:05their Navy. The Navy is now at the bottom of the sea. So that's the choice. This is an
04:12excursion. We figured oil prices would go up, which they will. They'll also come down.
04:17They'll come down very fast and we will have gotten rid of a major, major cancer by the face
04:22of the earth. The president has been trying to encourage the shipping to continue, saying
04:27the U.S. will help insure. The U.S. could even escort some armadas of ships as they go
04:32through. Is that realistic? And if you were a producer, would you take that risk with your
04:35assets? I think it is. It is a very big risk. Obviously, people still have insurance, but
04:41it's now war rates. So it's gone way up. And of course, the administration said that they
04:45will insure ships if they can't get commercial insurance. But the risk is that a lot of the
04:51Iranian Navy has been destroyed, but there's still drones and there's still explosive speed
04:59boats. Those fast boats, yeah.
05:01That would put a tanker at risk. And so you have to be very bold. And at least as I
05:08understand
05:08that the escorts, they're not ready to do that yet because naval ships are focused on
05:14the war and protecting U.S. battleships. I mean, we did have in 1987, the U.S. provided
05:21escorts to Kuwaiti tankers, but there weren't any drones then.
05:27I look back on the last week and there was that moment when the Treasury Secretary went on a rival
05:31network. He was on CNBC and he floated the possibility of the administration doing more. And investors
05:37responded positively to that, as vague as the comment was.
05:40I'm...
05:41Did he define more?
05:42He did define more, no. There is a generalized lack of definition, I think, on many fronts here.
05:47But that gets to my question, which is, Christina asks about there being kind of escorts,
05:52naval escorts, perhaps additional insurance that's backed up or provided by the U.S. government.
05:56When you look at kind of the panoply of policy options that could be presented by this administration,
06:01what would make the most difference to industry at this point in time?
06:05What would actually help?
06:07What would be the end of the attacks? I mean, that would be it. It's very simple.
06:12And we know that the air war is aimed at the missile launchers, trying to knock them out
06:18one by one. They open up and get them. They're in these missile cities that Iran has. So I think
06:25it's trying to get Iran to a position where it simply is toothless. That's the objective. And
06:32the president has talked about unconditional surrender. Not sure what that means.
06:36A little less definition there as well.
06:39Yeah. And remember, Iran, it's a divided leadership and as well as a decimated leadership.
06:46We're waiting this morning to see if they have chosen a new leader, but unclear,
06:49you know, that it won't be the same power center that Khomeini had.
06:53No, I mean, he had been at it for a long time. I'm curious how you see the price,
06:59where you see the price going from here. So it's been an incredibly fast move, as you
07:03point out in your piece, as we've seen over the course of the week. And we were talking about
07:07the prospects of a hundred dollar barrel last weekend. Where do you see the price going from
07:12here? And I think there's a question a lot of people have on their minds, which is what is the
07:16lag between that happening and we seeing even more manifest at the pump higher gas prices?
07:20Well, I think that, you know, there are all sorts of predictions out there. You hear people saying,
07:24you know, it's over 100 or 150. I mean, I think these are notional ideas that
07:29clearly all the pressures are for the price to go up. You have lost 20 percent of world oil. You've
07:34lost 20 percent of LNG. And as a result of that, markets are going to get people bidding for supplies.
07:41We see tankers that were going to carry LNG to Europe now being diverted to Asia. So,
07:46you know, everything points to higher prices. Where the limit is really depends upon event.
07:52And why I say what's the most important thing is duration. Does this go on a week? Does this go
07:58on
07:58a month? And that has different consequences. As you look at this conflict and the economic story
08:04part of this, as we talk about it, as we've all talked about it, what are people missing? What is
08:09the most important thing that you think people are overlooking in this conflict and how it's impacting
08:13the economies? Well, to me, one thing is that we do have resilience. We're not in the position we
08:19would have been a decade or two ago. Because the U.S. is now the world's largest oil producer,
08:24that gives a security that we didn't have before. You have production going up elsewhere. You have
08:30Canada at 4 million barrels a day. Brazil is 4 million barrels a day, which is four times what,
08:35by the way, Venezuela is currently producing. That's interesting.
08:38So there are alternatives and there are strategic stocks, which were created in the 1970s in response
08:44to the threat of a disruption of supply coming from the Gulf. So you have all of those factors
08:51at work. You also have the Saudi have an east-west network that can move oil to the Red Sea.
08:56So it
08:57isn't, those are things that need to be kept in mind, even as we look at an unprecedented situation.
09:03You bring up the strategic reserves. There's one in the U.S., of course, the president has talked a
09:07couple of times about the prospects of drawing that down. What is the calculus a president must
09:12use in a moment like this to decide that? So, of course, used by President Biden as the war began
09:16in
09:17Ukraine. What should the president be thinking about when it comes to whether or not to deploy that?
09:22Well, this is a much more serious disruption of oil than the ones that President Biden responded to.
09:29We also saw it used at various times on the eve of certain presidential elections when gasoline prices
09:34go up. As we know, gasoline prices are the most sensitive prices in the country, particularly
09:40sensitive in an election year. So I think that it will be a judgment that you need to send it
09:48into
09:48the market to reassure the markets. I remember that on the eve of the Gulf War in 1991,
09:54they released the strategic reserves and the price, instead of going up, as people thought, went down.
10:01So I think I would expect, and it's not only the U.S., but you have all these other IEA
10:05countries,
10:05and China has built up huge reserves that those will be used.
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